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Calculate the year-by-year book and economic profitability for investment in polyzone production, as described in Chapter. Use

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Calculate the year-by-year book and economic profitability for investment in polyzone production, as described in Chapter. Use the cash flows and competitive spreads shown in Table 11.2. What is the steady-state book rate of return (ROI) for a mature company producing polyzone? Assume no growth and competitive spreads.

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Year 2 Year O Year 1 Years 3-10 Investment 100 Production, millions of pounds per year Spread, dollars per pound 80 40 .95 .95 .95 .95 Net revenues 38 76 Production costs 30 30 0. Transport Other costs Cash flow 20 -12 20 20 +26 -100 -20 NPV (at r= 8%) - o

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The yearbyyear book and economic profitability and rates of return are calculated in the table below ...View the full answer


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Principles of Corporate Finance

Principles of Corporate Finance

ISBN: 978-0072869460

7th edition

Authors: Richard A. Brealey, Stewart C. Myers

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NPV stands for \"Net Present Value,\" which is a financial concept used to determine the value of an investment or project. It measures the difference between the present value of cash inflows and the present value of cash outflows over a given period of time, using a specific discount rate. To calculate the NPV of an investment, you need to first estimate the cash inflows and outflows associated with the investment, and then discount them back to their present values using a discount rate. The discount rate represents the cost of capital or the expected rate of return required by investors. The formula for calculating NPV is: NPV = sum of (cash inflows / (1 + discount rate)^t) - sum of (cash outflows / (1 + discount rate)^t) Where: Cash inflows: the expected cash received from the investment Cash outflows: the expected cash paid out for the investment Discount rate: the required rate of return or the cost of capital t: the time period in which the cash flow occurs If the NPV is positive, it means that the investment is expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a good investment. If the NPV is negative, it means that the investment is not expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a bad investment.

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